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Yahoo was founded by Jerry Yang and David Filo in January 1994 and was an early pioneer in the dotcom boom, but was quickly overhauled by Google and others. In 2008, it rejected a US$44.6 billion bid from Microsoft, and subsequently Yahoo’s market capitalisation slipped to just US$22.24 billion just three years later.

In a memorandum to employees, Mayer said she made the decision that de Castro should leave, one source said. There had been friction between the two executives for at least six months, another source said.

Mayer, who took the helm in July 2012, has been working to reinvent Yahoo by revamping products and adding exclusive content to help it compete with Google and Facebook for users and advertisers.

It’s a negative for Yahoo … Now, there’s a hole in the executive team

SCOTT KESSLER, ANALYST, S&P CAPITAL IQ

New products, redesigned e-mail and a spending spree on start-ups, engineers and media figures have so far not translated to growth. Analysts project that revenue dropped 1 per cent last year, with 3 per cent gains estimated for this year and next.

"It's a negative for Yahoo," said Scott Kessler, an analyst at S&P Capital IQ. "This is someone who had a tremendous amount of responsibility. Now, there's a hole in the executive team."

De Castro's departure, the first high-profile exit of an executive Mayer recruited, would be effective from yesterday, the company said in a filing with the Securities and Exchange Commission on Wednesday. It did not name a replacement.

De Castro, Mayer's top lieutenant, joined Yahoo in November 2012 from Google. He made an estimated US$109 million from his stint at Yahoo, including salary, bonus, stock awards, compensation for leaving Google and severance payments, according to Equilar, a compensation researcher.

His exit comes after Yahoo unveiled new advertising options earlier this month, including a service to help marketers more accurately target audiences and a new ad exchange, which gives companies more tools to manage promotions on their websites.

EMarketer estimates Yahoo's share of the US digital-advertising market will shrink to 5 per cent next year from 5.8 per cent last year.

"It has seemed that de Castro was hired at a time when the company's senior management was not particularly focused on advertising, and with time it seems that there is both a focus and increasing concern about the absence of a turnaround," said Brian Wieser, an analyst at Pivotal Research.

This article appeared in the South China Morning Post print edition as Yahoo executive fired amid disappointing growth